Carry trade
- Thread starter DrEvil
- Start date
Although an interesting idea, and it essentially has been that way if you think about it:
X exports to us; x gets dollars; x invests those dollars. Our Government hopes that they invest back into us. But as their economies advance and mature; they won't have to do that.
X is selling to us to carry the dollar; instead of borrowing.
With the USD falling it is putting pressure on that equation. The key is that US rates are low so the pain in minimized (it may not seem that way). It may be magnified once rates are higher.
How to play it? Long the more controlled currencies (yen etc.). Long short term rates (tres.), and short long term rates.
Now.. this has been playing out; how long will it go? Is new money too late for that trade?
What if US interest rates actually rise substantially in the future to combat $ denominated inflation?
I am trying to figure out three scenarios:
The Fed continues to cut (market says yes). The "others" don't cut rates... see above positions.
The Fed realizes it is futile, and stops cutting...? Far fetched, but imagine the risk reward (odds) when the markets realize this...
Whatever the Fed does; "We" push the exporters into recession too, and they start cutting (ie. ECB etc.). I still don't believe that the world's economies have decoupled.
The problem I am having is that the obvious positions are so far along it is hard to commit new capital. For me mainly do to the current volatility everywhere... (not talking about short term trading).
Anyway. I am not trying to make predictions, but I do not think the USD can be the basis for the traditional carry trade. As always, I am probably wrong more than I am right.
X exports to us; x gets dollars; x invests those dollars. Our Government hopes that they invest back into us. But as their economies advance and mature; they won't have to do that.
X is selling to us to carry the dollar; instead of borrowing.
With the USD falling it is putting pressure on that equation. The key is that US rates are low so the pain in minimized (it may not seem that way). It may be magnified once rates are higher.
How to play it? Long the more controlled currencies (yen etc.). Long short term rates (tres.), and short long term rates.
Now.. this has been playing out; how long will it go? Is new money too late for that trade?
What if US interest rates actually rise substantially in the future to combat $ denominated inflation?
I am trying to figure out three scenarios:
The Fed continues to cut (market says yes). The "others" don't cut rates... see above positions.
The Fed realizes it is futile, and stops cutting...? Far fetched, but imagine the risk reward (odds) when the markets realize this...
Whatever the Fed does; "We" push the exporters into recession too, and they start cutting (ie. ECB etc.). I still don't believe that the world's economies have decoupled.
The problem I am having is that the obvious positions are so far along it is hard to commit new capital. For me mainly do to the current volatility everywhere... (not talking about short term trading).
Anyway. I am not trying to make predictions, but I do not think the USD can be the basis for the traditional carry trade. As always, I am probably wrong more than I am right.
I am one of those. +, US situation is similar to Japan in 90's.
Which to go long?
I was thinking of building a position in TRY, but some dumb people in here played in my head. If I did over the last 4 weeks, I would have made a bundle (not only capital appreciation, but also the juicy carry).
What people write can corrode one's mind. It happened to me not only in this trade, but in other things in life. Once should be careful of the external stuff that enters the mind without us realizing it explicitely.